Inflation, as measured by producer wholesale prices, declined two-tenths of a percentage point to 6% for the year ending in January, the Bureau of Labor Statistics reported Thursday, less of a decline than expected.
The report also showed prices rising quickly when measured on a month-to-month basis, a development that will worry economists. From December to January, prices rose 0.7% — the largest one-month inflation since June of last year and an increase that would translate to an annual rate of nearly 9%.
Inflation had been trending down in recent months, a bit of good news for President Joe Biden, whose approval ratings have been undercut by soaring costs for households. But the pop in monthly inflation will be of concern to economists and will put pressure on the Federal Reserve to carry out bigger hikes in its interest rate target.
“While producer prices are off their peaks, inflation is elevated and the monthly change in prices showed a move in the wrong direction last month,” wrote Rubeela Farooqi, chief U.S. economist for High Frequency Economics. “These data will keep the Fed on track to raise interest rates further, to a sufficiently restrictive stance, in order to get inflation back towards the 2% target.”
Annual wholesale inflation previously peaked in March, clocking in at 11.7%. Trends in producer prices eventually trickle down to households.
BAD NEWS: IT LOOKS LIKE INFLATION IS STUBBORN AND THE FED WILL HAVE TO REACT
The report comes just days after an update to the more closely watched consumer price index showed inflation falling only slightly, dropping from 6.5% in December to 6.4% last month. The headline number was higher than what most economists had expected and has raised concerns about more interest rate hikes by the Federal Reserve and a subsequent recession.
After a barrage of four consecutive three-quarter-point rate hikes last year, the Fed eased off the gas a bit during its December meeting and opted for a half-point hike and then announced an even milder quarter-point hike earlier this month.
The normal effect of raising rates is that the economy and, ultimately, the labor market will slow down. Despite the major increase in interest rates over the past year or so, the job market has proven resilient.
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The economy recorded another 517,000 jobs in January, the Bureau of Labor Statistics reported. A robust performance that shows commerce is holding up despite the rate hiking. The unemployment rate also unexpectedly fell to 3.4%, the lowest rate since 1969.
